PPS – Features, Benefits, Steps and Working

The Reserve Bank of India introduced the Positive Pay System (PPS) on 1st January 2021. It is a Cheque Truncation System implemented in all Indian banks. The primary purpose of the Indian banks’ positive pay system is to increase the safety of the cheque transaction system. It also safeguards the Indian banking system against any fraud related to cheques.

This blog is a detailed guide on Positive Pay System, how it works, its features and benefits, how to use it and what is reverse pay. Read on!

What is Positive Pay System (PPS)?

The Positive Pay System, also known as PPS, involves implementing an automated system that detects fraud in cheque-based transactions. The system uses a mechanism that compares the company’s cheque with the one submitted for payment. 

The primary function of the Indian bank’s positive pay system is to reconfirm the details stated on the cheques that have a high value. The body or the individual that issues the check submits the details of the cheque through electronic nodes like SMS, mobile app, etc. The details include the date of issue, the name of the person to whom the cheque is issued, the amount, etc. The Cheque Truncation System checks all these details and flags any discrepancies with the cheque. 

The system allows the issuer and their bank to take necessary measures and avoid fraud. It would be best if you used the positive pay mechanism for all cheques with a value greater than Rs.50,000. You can use any of the ways mentioned above to register the details of the cheque. 

How Does the Positive Pay System Work?

If you decide to make payments via cheque, you must know the positive pay system for cheques. As mentioned earlier, you need to share all the check details with your bank if you are issuing a check with a value of Rs.50,000 or more. You can share these details in different ways.

1. E-mail

If you have issued a cheque to an individual or institution whose value exceeds Rs.50,000, you need to use the centralised positive pay system. You can share all the cheque details via e-mail with your bank or wealth manager. The bank will then compare all the cheque details with the details you provided in the e-mail.

2. Net Banking

You can log in to your net banking account and go to the services section to add the cheque details. You can click on the ‘Cheque Book Request’ menu and then click on the ‘Positive Pay’ option. You can then select the account used for the cheque payments and add all the cheque details. Cross-verify all the details and click on submit. The information will reach the bank, and the bank will use the information for CTS Clearing. Alternatively, your mobile banking app can submit the cheque details. 

3. The Cheque Details

As per the positive pay system for cheques, you need to provide the following information for all the cheques that amount to Rs.50,000 or more:

• The 16-digit account number
• The cheque number
• The date of the cheque
• The Transaction Code
• Short account number, if applicable
• The amount for which the cheque is issued
• Name of the Payee
• The Drawee Routing Number

Once you provide these details, the bank will cross-check the information when the payee submits the cheque for payment. If there is a data mismatch, the bank and the cheque issuer will be notified about this mismatch.

Who Uses Positive Pay?

Several businesses use the positive pay mechanism across industries. Also, individuals who make most of their payments via cheque are the system’s users. Most companies and individuals avail of the services of positive pay if the banks do not charge an additional amount for the service. However, the check issuers might refrain from using the system if the banks charge a fee. 

The system is frequently used by parties that make most of their transactions via cheques. Also, people who issue cheques of more than Rs.50,000 often avail of the centralised positive pay system. 

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Features of the Positive Pay System

There are several essential features of the cheque-positive pay system. You need to understand these features before you use the system. Some important parts of the system include:

1. Discretionary

The use of the positive pay cheque system is not mandatory. The cheque issuer may decide if they want to avail of the services or not. However, if the cheque amount exceeds Rs. 5 lakhs, your bank might make it mandatory.

2. Information Collection

The positive pay system in Indian banks allows you to add all the relevant information about the cheque and gives you different options like SMS, mobile banking, etc., to submit the information.

3. Discrepancy Flagging

If the information submitted by the issuer and the details of the cheque submitted by the payee do not match, the Cheque Truncation System highlights the issue to the issuer and the bank of the issuer.

4. Availability

Post the positive pay system RBI circular, almost all the major banks in the country have built a mechanism to incorporate the positive pay system. The National Payments Corporation of India developed the system and made it available to banks across the country.

5. Easy Dispute Resolution

If your cheques clear the positive pay system and there are further discrepancies, the CTS grids will help you resolve the concerns.

Benefits of Payee Positive Pay

There are several benefits to the positive pay system:

1. Reduction in Cheque Frauds

Post implementing the cheque-positive pay system, the number of cheque frauds has dropped drastically. The system safeguards the business as well as the clients. The system flags any discrepancy, making you aware of possible financial fraud. Hence, it protects customers and the entire cheque-based transaction system.

2. Value Proposition

The positive pay system offers excellent value to all business clients as they can now automate their cheque reconciliation processes with it. It also helps in simplifying the accounting treatment of the cheque. Hence, you can capitalise on these values and retain your clients.

3. Automation

The entire positive pay system has brought automation in detecting any cheque-related transactions. With automation, you can save resources and time. 

You must conduct the whole process manually if such a system does not exist. Hence, the chances of errors increase. Also, in manual checking, the redressal of the situation takes a lot of time. 

4. Information Analysis

The positive pay system checks the payee information and the numeric details like amounts, dates, etc. Hence, the payee information check adds a layer of protection to the entire system.

What are the Steps for Using Positive Pay on Internet Banking?

If you want to use the positive pay system on internet banking, you need to follow a few simple steps:

Step 1: Log in to your net banking service using your user ID and password

Step 2: Go to the main menu and select the ‘Service request’ option

Step 3: Now, select the ‘Cheque Book Requests’ option

Step 4: Select the Positive Pay option

Step 5: Now, choose the account mentioned on the cheque. Add all the details about the check, like the payee’s name, date of issue, etc., and click on ‘Continue’

Step 6:  Cross-verify all the details and submit them

Once you complete these steps, the information will be sent to the bank. The bank will verify the information on the cheque submitted for payment against the information provided via the positive pay system.

What is Reverse Positive Pay?

Reverse Positive Pay is used by businesses and individuals who want to keep tabs on their cheques. In this system, the bank notifies the company of any cheques submitted and has the company’s name as the issuer. The company then verifies the details of the cheque against its records. If everything matches, the company clears the cheque. 

The bank waits for clearance from the company before processing the cheque. If the bank doesn’t hear back from the company, they will process the cheque. Companies opt for this system as it is cheaper than the positive pay system.

Reverse Positive Pay vs Positive Pay

Reverse positive pay and positive pay are entirely different systems. Under the reverse positive pay system, the company self-monitors all the cheques deposited for clearance. Hence, they should inform the bank if they want the bank not to process the cheque. Banks report all cheque information to the company, which then approves clearance.

However, in the case of a positive pay system, you submit all the details of the cheque to the bank, and the bank verifies the cheques using an automated system. If there are discrepancies, the bank flags the issues and notifies the company. The latter approach is a lot safer and more convenient. However, it is more expensive than the former system.

Final Word

The positive pay system safeguards all parties involved in a cheque transaction.  The system allows you to add the positive pay system amount and other details like the payee’s name, etc. Companies make thousands of transactions via cheques and are exposed to financial threats. Therefore, the positive pay system has automated the entire process of cheque verification. Get on board with the system and safeguard yourself from any fraud in the future.